Breaking up can be Heavy Duty

04 August 2016

Naomi Devlin, Solicitor, of Worthingtons Matrimonial department considers the implications on married couples or those in a civil partnership, of the government’s Stamp Duty Land Tax higher rates for purchases of additional residential properties, which came in to force in April 2016.

Breaking up can be Heavy Duty

As of April 2016, an additional 3% Stamp Duty Land Tax (SDLT) surcharge is applicable in purchases of an additional residential property which costs in excess of £40,000. The surcharge is payable where, at the end of the day that the purchase of the new property has been completed:

  • The purchaser has a major interest in a residence other than the one which has been purchased
  • That other property is worth more than £40,000
  • The other property is not subject to a lease with an unexpired term of more than 21 years
  • The new dwelling does not replace the buyer’s main or existing residence.

In respect of couples, spouses or civil partners are treated as one entity for purchases by either or both of them. This means that the couple is only entitled to own one property between them without the higher rate SDLT becoming applicable for a purchase of an additional property.

However, the position becomes more complicated during a relationship breakdown. If a couple are separating and their separation is by way of Court Order, Deed of Separation or ‘is likely to be permanent’ they are treated as separate entities.

When a couple separates, one party is entitled to purchase another dwelling without the higher rate SDLT becoming applicable, provided they are formally separated as above and they don’t have an interest in any other property, other than the one they are buying.

If the party seeking to purchase another property still has an interest in the former matrimonial home, the higher rate SDLT is payable. The SDLT can, however, be reclaimed if they dispose of their interest in the previous property within three years.

If the separation is not yet permanent, the purchaser will be required to pay the SDLT and then claim back after three years if their separation has become permanent, albeit only as long as they have relinquished their interest (either by sale or transfer) in the previous property within that timeframe.

In effect, what this means in the case where a couple are separating and each buy themselves a second home:

  • If the properties being purchased are replacing the former matrimonial home (which is being sold) the transaction will not be subject to the higher rate as each party will only own one property at the conclusion of the transaction (provided it is a permanent separation).
  • If the properties are being purchased prior to the matrimonial home being sold, the purchases will be subject to the higher rate SDLT. This is because the purchasers will each own two properties at the end of the day of the purchase transaction. They can, however, claim a refund within 3 years if they sell their main residence within that time period (and subject to the separation remaining permanent).

 

The refund is claimed by way of completing a form on the gov.uk website, with the aim that the refund will be processed within 14 days.

Given the financial implications in cases where the increased rate applies (on a house purchase of between £250,000 - £925,000, purchasers will be required to pay 8% SDLT) it is vital to obtain legal advice when considering purchasing an additional property following a marriage breakdown. Worthingtons are specialist Solicitors in this area. Our property department is headed by Huw Worthington, Senior Partner.

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